Cabot Oil, Discovery: Ratings Changes

BOSTON (TheStreet) -- TheStreet.com's stock-rating model upgraded Cabot Oil & Gas(COG Quote) to "buy."

The numbers: Second-quarter net income fell 53% to $26 million, or 24 cents a share. Revenue declined 18% to $205 million. Cabot's gross margin increased from 73% to 78%, but its operating margin fell from 38% to 35%. The company has weak liquidity, evident in its quick ratio of 0.3. A debt-to-equity ratio of 0.4 indicates conservative leverage.

The stock: Cabot is up 53% this year, beating major U.S. indices. The stock trades at a price-to-earnings ratio of 22, a premium to the market, but a discount to oil and gas peers. The shares pay a 0.3% dividend yield.

The model initiated coverage of media company Discovery Communications(DISCK Quote) at "hold."

The numbers: Second-quarter net income rose 330% to $185 million and earnings per share jumped 169% to 43 cents. Revenue declined marginally to $881 million. Discovery's gross margin fell from 71% to 70%, but its operating margin jumped from 26% to 31%. A quick ratio of 0.9 reflects less-than-ideal liquidity. A debt-to-equity ratio of 0.6 indicates reasonable leverage.

The stock: Discovery shares have doubled this year, outpacing major U.S. indices. The stock trades at a price-to-earnings ratio of 21, on par with the market, but a discount to broadcasting peers. The company doesn't pay dividends.

The model upgraded Eaton Corp.(ETN Quote), a maker of electrical systems and machinery, to "buy."

The numbers: Third-quarter profit dropped 39% to $193 million, or $1.14 a share, as revenue fell 26% to $3 billion. Eaton's gross margin dropped from 32% to 28%, and its operating margin declined from 9% to 7%. A quick ratio of 0.9 reflects less-than-ideal liquidity. But a debt-to-equity ratio of 0.5 is less than the industry average, indicating restrained leverage.